As business leaders, we’re obsessed with productivity. We implement new processes, invest in cutting-edge technology, and reorganize our workforce—all in the pursuit of squeezing more output from our resources. However, there’s an insidious force that undermines all of these efforts: employee turnover.
High turnover rates are the enemy of productivity, and the costs are staggering. According to research by SHRM, the cost of replacing an employee can range from 50% to 60% of their annual salary, with total costs climbing to between 90% and 200%. For instance, replacing an employee earning $60,000 annually would cost approximately $30,000 to $45,000, and the overall impact on the company could be between $54,000 and $120,000.
The Hidden Costs of Turnover
The toll of turnover extends far beyond the tangible expenses of recruitment and training. When an employee leaves, they take irreplaceable institutional knowledge and experience with them. Teams are disrupted, morale is shaken, and remaining employees are burdened with increased workloads until the vacancy is filled.
Productivity craters as new hires require extensive ramp-up time before they can contribute at full capacity. Studies show that it takes a new employee 8 months to reach the productivity levels of the person they replaced. For highly specialized roles, true proficiency may take a year or more.
Adding to this challenge, the hiring process itself often takes three weeks or more. That’s three weeks of lost productivity, revenue, and innovation. Plus, there’s the time other employees have to spend training the new hire.
Managers and hiring professionals strive for low turnover to alleviate these potential losses.
However, low turnover isn’t always a positive for organizations. In many workplaces with long-tenured employees, the status quo of ‘good enough’ can become the comfortable enemy of ‘getting better.’ Your employee value proposition risks being downgraded to a steady paycheck that doesn’t require too much effort. This can result in employees who are physically present but mentally disengaged. That means turnover type, not turnover rate, is actually a better indicator.
When Turnover is Bad
If your high-performing or high-potential employees are leaving, that should trigger alarm bells for any manager. Turnover is often due to internal culture. It’s said that people don’t leave companies; they leave managers. How leaders treat employees and direct reports, as well as the depth of relationships they build, are major factors influencing turnover.
Turnover can also be tied to purpose—or lack thereof. Employees are more likely to stay at an organization if they feel they’re making a difference and if they have shared values; it’s a quest for meaningful work, according to the Society of Human Resource Management.
The best way an organization can create a culture around values is by talking internally, not just about them but also about specific examples of how they come alive in the organization. That can give an employee a sense of whether they see themselves living a value alignment.
If turnover is being caused by poor management or a lack of meaning—especially if high performers or high-potential employees are the ones leaving—exit interviews can be a way of monitoring and collecting data. Once you know why they’re leaving, you can determine how to address it.
When Turnover is Good
While high turnover rates generally spell trouble for productivity and morale, there are scenarios where turnover can be beneficial. Turnover can also happen when an organization implements new large-scale strategies or cultural shifts. In the face of change, it’s possible that some people are no longer a fit going forward. They can become disenchanted with the new way of doing business and leave of their own accord.
Clients invest a lot of time and energy to go through a culture shift, and when they start seeing people leave, they’re confused. If there are groups of employees that aren’t interested in adapting to new ways of working and don’t want to be part of the future vision of the company, this type of turnover can be healthy because it offers the opportunity to bring in new people who better align with new expectations and perhaps even new skill sets.
If high performers are leaving, it’s not always cause for alarm in this case. After a strategic shift, an organization has to deliver something different for their customers. The high performer of yesterday may not be the high performer of tomorrow. It’s important to understand who is the best fit going forward.
Any number in a vacuum isn’t informative, including turnover rate. Companies need to know two things: what is driving their turnover rate, and who is leaving.
Addressing the Root Causes of Turnover
Understanding that turnover isn’t inherently bad or good is the first step. The key is to address the root causes of turnover, ensuring that when it does happen, it’s for the right reasons and in a way that benefits the organization.
Improving Management Practices
To begin addressing these root causes, one of the primary areas to focus on is management. To retain top talent, companies need to invest in leadership training and development. Good managers build strong relationships with their teams, provide clear communication, and offer support and recognition. Regular feedback and opportunities for professional growth can also help in retaining employees.
Creating a Strong Company Culture
A positive workplace culture where employees feel valued and engaged can significantly reduce turnover. This involves creating an inclusive environment where employees’ contributions are recognized and their well-being is prioritized. Encouraging collaboration, offering flexibility, and promoting a healthy work-life balance are crucial elements of a strong company culture.
Aligning Work with Purpose
Employees are more likely to stay with an organization if they feel their work has meaning. This means aligning their roles with the company’s mission and values. Organizations should communicate their purpose clearly and consistently, and involve employees in projects that contribute to the company’s larger goals.
Providing Competitive Compensation and Benefits
While culture and purpose are powerful intangible forces for retention, competitive compensation and benefits cannot be ignored. Ensuring pay reflects leading industry standards is incredibly important. Forward-looking organizations construct full-suite packages, including comprehensive insurance, retirement vehicles, wellness programs, and more, to demonstrate a long-term commitment to employee well-being.
Utilizing Exit Interviews Effectively
In those inevitable instances where turnover does occur, exit interviews represent an invaluable data stream for revealing underlying causes and systemic shortcomings. By proactively analyzing these insights for patterns, organizations can rapidly identify areas requiring remediation before further toxic spread.
Meeting with departing employees for an exit interview provides a final window into isolating and addressing issues—stemming the tide before it becomes an unstoppable cash flow of lost productivity.
The Takeaway
The takeaway is simple: your employees are not expendable assets to be consumed and discarded. Rather, they represent invaluable long-term investments that should be nurtured and retained. An excessive focus on minimizing labor costs is incredibly shortsighted if it comes at the expense of skyrocketing turnover.
Countless organizations have realized this truth and made employee retention their top priority—not as an HR platitude, but as a strategic imperative. By creating engaging cultures, offering competitive compensation and benefits, and prioritizing employee development, they’ve created workplaces where people want to stay and thrive.
At the end of the day, no productivity hack or technological solution can outweigh the toll of turnover. True productivity stems from experienced, engaged teams equipped with the institutional knowledge to navigate your unique business challenges. Treat your people as investments rather than costs, and the dividends will pay out through heightened efficiency, stability, and success.
